q2'20 earnings call - strlco.com -q2... · q2 2020. commercial revenues increased 8% to $30.1...
TRANSCRIPT
Q2'20EarningsCallAugust4,2020
Disclosure: Forward-Looking Statements
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Thispresentationcontains,andtheofficersanddirectorsoftheCompanymayfromtimetotimemake,statementsthatareconsideredforward-lookingstatementswithinthemeaningoftheSecuritiesActof1933andtheSecuritiesExchangeActof1934.Theseforward-lookingstatementsaresubjecttoanumberofrisksanduncertainties,manyofwhicharebeyondourcontrol,whichmayincludestatementsabout:thescopeanddurationoftheCOVID-19pandemicanditscontinuingimpactonnationalandglobaleconomicconditions;andourbusinessstrategy;financialstrategy;andplans,objectives,expectations,forecasts,outlookandintentions.Allofthesetypesofstatements,otherthanstatementsofhistoricalfactincludedinthispresentation,areforward-lookingstatements.Insomecases,forward-lookingstatementscanbeidentifiedbyterminologysuchas“may,”“will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,”“continue,”thenegativeofsuchtermsorothercomparableterminology.Theforward-lookingstatementscontainedinthispresentationarelargelybasedonourexpectations,whichreflectestimatesandassumptionsmadebyourmanagement.Theseestimatesandassumptionsreflectourbestjudgmentbasedoncurrentlyknownmarketconditionsandotherfactors.Althoughwebelievesuchestimatesandassumptionstobereasonable,theyareinherentlyuncertainandinvolveanumberofrisksanduncertaintiesthatarebeyondourcontrol.Inaddition,management’sassumptionsabout future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in thispresentationarenotguaranteesof futureperformance,andwecannotassureany reader thatsuchstatementswillbe realizedor the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward- lookingstatementsduetofactorslistedinthe“RiskFactors”sectioninourfilingswiththeU.S.SecuritiesandExchangeCommission(“SEC”)andelsewhereinthosefilings.Theforward-lookingstatementsspeakonlyasofthedatemade,andotherthanasrequiredbylaw,wedonotintendtopubliclyupdateorreviseanyforward-lookingstatementsasaresultofnewinformation,futureeventsorotherwise.Thesecautionarystatementsqualifyallforward-lookingstatementsattributabletousorpersonsactingonourbehalf.
Thispresentationcontainsthefinancialmeasures“EBITDA,”“AdjustedEBITDA,”and“AdjustedEPS,”whicharenotcalculatedinaccordancewithU.S.GAAP.Areconciliationofthenon-GAAPfinancialmeasuresEBITDA,AdjustedEBITDA,andAdjustedEPStothemostdirectlycomparableGAAPfinancialmeasurehasbeenprovidedintheAppendixtothispresentation.
Second Quarter 2020 Highlights
•Allofourbusinessesdeemed“EssentialCriticalInfrastructure”(1).
•Minimal impact from COVID-19 in Q2'20 across all three of ourbusinesssegments.
•OurStrategycontinuestoproduceresultsandreducerisk.
•Wecontinuetoserveallourcustomers.
•RecordEBITDAandstrongoperatingcashflow.
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(1)PertheNationalCybersecurityandInfrastructureAgency
Second Quarter 2020 Results• Revenuesincreasedto$400.0millionfrom$264.1millioninQ2'19,primarilyattributabletotheinclusionofthreemonthsofrevenuefromPlateauoperations.
• Grossmarginincreased524basispointsto14.9%from9.7%inQ2'19.
• EBITDAwas$41.2millioninQ2'20,a169%increaseover$15.3millioninQ2'19.
• Year-to-dategenerated$52.3millionincashfromoperations,comparedtocashburnof$4.3millionand$7.9millioninQ2'19andQ2'18,respectively.
• Cashandcashequivalentswere$70.6millionatquarterend.
• CombinedBacklogandassociatedmarginwere$1.57billionand11.7%atquarterend.
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Backlog Growth And Margin Improvement
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June30,2020 December31,2019 BooktoBurnIn2020Amount Margin% Amount Margin%
Backlog $1,134million 12.9% $1,068million 11.5% 1.11X
CombinedBacklog $1,571million 11.7% $1,342million 11.0% 1.37X
• Backlogreaches$1.13billion,up6%fromtheendof2019.
• Combined Backlog which includes unsigned low-bid awards reaches $1.57billion.
• Backloggrossmarginincreased140bpsto12.9%andCombinedBackloggrossmarginincreased70bpsto11.7%fromendof2019.
Consolidated Results
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($MM) Q22020 Q12020 Q22019
Revenues $400.0 $296.7 $264.1
GrossProfit 59.6 35.2 25.5GrossMargin 14.9% 11.9% 9.7%
SG&A (18.5) (17.6) (10.2)SG&Aas%ofRevenues (4.6)% (5.9)% (3.9)%
IntangibleAssetAmortization (2.9) (2.8) (0.6)
OtherOperatingExpense,net (5.2) (2.7) (3.5)
OperatingIncome 33.0 12.1 11.2
InterestExpense,net (7.5) (7.7) (2.6)
IncomeTaxExpense (7.2) (1.2) (0.7)
Noncontrollinginterest (0.1) (0.1) 0.0
NetIncometoSTRL $18.2 $3.1 $7.8
DilutedEPS $0.65 $0.11 $0.29
EBITDA $41.2 $20.3 $15.3
CashFlowsfromOperatingActivities $41.5 $10.8 $14.9
• Overall variations from 2019 were driven by the October 2, 2019acquisition of Plateau and the related acquisition refinancing andchangesinthetaxNOLaccountinginQ42019.
• TheQ22020grossmarginimprovementoverQ12020wasdueto:
◦ AhighermarginmixofworkandhighervolumesforPlateau;
◦ Seasonally slow firstquarter revenues results inahigher levelofunderabsorbedfixedcosts;and,
◦ Improved gross profits and margins in each of Sterling's legacyunits;HeavyCivil,CommercialandResidential.
• TheincreaseinQ22020OtherOperatingExpensewasdrivenbyahighermixofgrossprofitgeneratedbySterling's50%ownedsubsidiarieswhichresultedinanincreasedamountofincomesharingexpense.
• Theeffectiveincometaxratein2020is28%,ofwhichthecashportionisexpectedtobe6%,essentiallyStateincometaxes.Theeffectiveincometaxratein2019of8%reflectstheimpactoftheNOLutilization.
Segment Results
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• HeavyCivil
◦ Revenuesincreased10%reflectingtheincreasingbacklog.◦ Grossprofitandgrossmarginimprovedyearoveryear.◦ Thedecrease inoperating incomewas the resultof increasedgrossprofit from
our50%owned subsidiarieswhichdrovehighermargins, but alsodrovehighermembers interest expense of $1.8M. Heavy Civil also had additional costsassociatedwithCOVID-19pandemicimpactsduringthequarter.
• SpecialtyServices
◦ RevenuesfromPlateautotaled$105.6millionbenefitingfromitsrecordbacklogatthebeginningofthequarterandpoorMarch2020weatherpushingworkintoQ22020.
◦ Commercialrevenuesincreased8%to$30.1million.◦ OperatingincomeandmargingrowthweredrivenbytheinclusionofPlateau.
• Residential
◦ RevenuesincreasedasheavyraininMarch2020pushedworkintoQ22020.◦ Houstoniscontinuingtogainscaleandaccountedfor14%oftheslabvolumein
Q22020comparedto6%inQ22019.◦ Second quarter COVID-19 related impact was not as severe as its customers
expectedatthebeginningofQ22020.◦ Operating margins improved with the continued ramp-up of our Houston
expansion.
($MM) Q22020%of
RevenueQ22019
%ofRevenue
Revenue
HeavyCivil $220.4 55% $200.2 75%
SpecialtyServices $135.7 34% $27.9 11%
Residential $43.9 11% $36.0 14%
TotalRevenue $400.0 $264.1
OperatingIncome
HeavyCivil $3.9 1.8% $5.7 2.9%
SpecialtyServices $23.2 17.1% $0.9 3.1%
Residential $6.0 13.8% $4.8 13.4%
Subtotal $33.2 8.3% $11.4 4.3%
Acquisitionrelatedcosts $(0.1) $(0.3)
TotalOperatingIncome $33.0 8.3% $11.2 4.2%
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Increased EBITDA and Cash Flow Drives De-levering Strategy
October2019FiveYearCreditFacility(the"Facility")
• $400MTermLoanFacility
• $75MRevolvingCreditFacility
• Facilityproceedsof$400MtoacquirePlateauonOctober2,2019
• Facility structured to reduce total funded debt EBITDA coveragefromaninitial3.5Xto2.5Xorlesscoveragebytheendof2021.
• NopenaltyforFacilityprepayments.
KeycashflowConsiderations
• Cashflowsfromoperationswere$52.3MforthesixmonthsendedJune30,2020comparedto$(4.3)Mforthecomparableprioryearperiod.
• 2020 EBITDA guidance of $125M to $135M; Actual EBITDA of$61.5Mforthesixmonthsof2020.
• Additional2020noncashexpensesexpectedtobeinthe$25Mto$29Mrange(NOLutilization,stockbasedcompensation,noncashinterestexpense,etc.).
• Scheduleddebtpaymentstotal$52Min2020and$50Min2021.
• Morecashflowmodelingconsiderationsprovidedintheappendix.
EBITDAcoveragetargetedtobe2.5Xorlessbytheendof2021
• RecordCombinedBacklogandmargin inBacklogatquarterend,despiteCOVIDrelatedheadwinds.
• SolidliquiditypositionthatcontinuestostrengthenthroughouttheremainderoftheyearwithcontinuedstrongEBITDAandcashflowgeneration.
• Aresilientteamthathasshowntheabilitytoadjustquickly inarapidchangingenvironment.
• COVIDimpactstoourend-markets,specificallywithinourResidentialspace,havebeenlessseveretodatethananticipated.Goingforwardwedonotforeseeanymajor hurdles to clear in relation to COVID-19. However, with the continuingvolatility of the COVID-19 pandemic, significant incremental pandemic impactscouldkeepusfromachievingour2020guidance.
Forward Looking Business Fundamentals Remain Strong
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Reinstating 2020 Guidance
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• WenowexpectFY2020revenuesofbetween$1.415billionand$1.430billion.◦ This26%projectedrevenuegrowthisaresultofouryear-to-dateperformance,theanticipatedcontributionfrom
Plateau,andourrecordhighCombinedBacklog,alongwithourviewoncurrentbookingtrendsandmarketstrength.
• 2020 adjusted net incomemid-point guidance of $42.5million, growing 73%or $18.0millionover2019.◦ AttributabletoafullyearofcontributionfromPlateau,recordhighCombinedBacklogmargin,continuedmixshift
tohighervalueaddprojects,andimprovedprojectexecution.◦ Adjustednetincomeguidanceincludesaneffectiveincometaxrateofapproximately28%.Thisrateincludesnon-
cashincometaxexpenseofapproximately$12.8million($0.46perdilutedshare).
• Mid-pointexpectedadjustedEBITDAof$130.0million.◦ MorethandoubleFY2019adjustedEBITDA.◦ Reflectstheabovefactorsthatinfluencebothrevenueandnetincome.
• Mid-pointexpectedadjusteddilutedEPSof$1.52.◦ Assuming28milliondilutiveweightedaveragesharesoutstanding.
Contact Us
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RonBallschmiedeChiefFinancialOfficer281-214-0777
FredBuonocore,[email protected]
CompanyRepresentativeSterlingConstructionCompany,Inc.
InvestorRelationsAdvisorsTheEquityGroupInc.
Appendix
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Strategy Driving Profitable Growth
13Dollaramountsinmillions
Revenue $1,415-$1,430
GrossMargin 13%-14%
G&AExpenseas%ofRevenue 5%
OtherExpenseNet $14-$16
JVNon-ControllingInterestExpense $1.5-$2
AdjustedNetIncome** $41-$44
AdjustedDilutedEPS** $1.46-$1.57
ExpectedDilutiveSharesOutstanding 28.0million
14*DollarsinmillionsexceptfordilutiveEPS**Excludes$1-$2millionofnon-recurringacquisitionrelatedexpense
Modeling Considerations*
Modeling Considerations* (Continued)
DepreciationandAmortization $34-$36
CAPEX(netofdisposals) $25-$30
AdjustedEBITDA** $125-$135
EffectiveIncomeTaxRate*** 28%
15*Dollarsinmillions**Excludes$1-$2millionofnon-recurringacquisitionrelatedexpense***Oftheexpense,only$4.6millionisanticipatedtobecashtaxes
ThreeYearRevenueGrowthExpectations:
HeavyCivil–HardBid 2%-3%
HeavyCivil–AlternativeDelivery 3%-5%
SpecialtyServices 5%-7%
Residential 5%-6%
Modeling Considerations - Cash Flow
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NON-CASHITEMS Q22020YTD Q22019YTD
Depreciation $10.8 $7.3
IntangibleAmortization $5.7 $1.2
DebtIssuanceCostAmortization $1.8 $1.6
Stock-basedCompensation $6.2 $1.7
FederalIncomeTaxes $6.2 $0.8
FY2020Expectations FY2019
$23to$24 $15.9
$11to$12 $4.8
$3-$4 $3.4
$10to$12 $3.8
21%ofPretaxIncome Nil
OTHERITEMS Q22020YTD Q22019YTD
InterestExpense,includingDebtIssuance $15.4 $6.0
CAPEX,netofDivestitures 13.8 4.1
ChangesinnetOperatingAssetsandLiabilities(2) $0.4 $(26.1)
FY2020Expectations FY2019
$30to$31 $16.7
$25to$30(1) $14.1
Nil $(3.9)
(1)WiderangeasactualspendingisdependentonhowtheCOVID-19uncertaintiesplayoutforthebalanceof2020.(2)WhileSterlingwillexperiencequarterlyseasonalvariationsthroughout2020,wedonotanticipateasignificantchangeforthefullyear.
($MM)
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